Business and Politics: Bailout rescue passes House
October 3, 2008 by afp
Filed under *AFP.com News/Events
Story by Chris Graham
freepress2@ntelos.net
And just like that, we had ourselves a bailout rescue. The House voted 263-171 today to pass a compromise $850 billion plan to buy up securities from Wall Street lenders to take pressure off the financial and credit markets, just four days after a vote on a similar legislative proposal failed on the floor of the House.
Fifth District Congressman Virgil Goode and Sixth District Congressman Bob Goodlatte, both facing re-election contests this fall, both voted against the measure. In a statement released this afternoon, Goodlatte said that while “inaction has never been an option,” he had reached the solution that the bailout rescue, which was proposed by the Bush administration and had the backing of a bipartisan group of lawmakers in the House and the Senate, was “not the solution to our long-term financial problems or our short-term credit-liquidity crisis.”
“The Financial Stabilization Package represents the largest corporate bailout in American history by taking $700 billion of taxpayers’ hard-earned money and handing it over to the very companies that made the bad decisions which led us into this mess in the first place. We literally reward those financial institutions who engaged in risky behavior to the tune of up to $8,000 for every family of four in the U.S.,” Goodlatte said.
“Since the federal government has to get this money from somewhere, it will borrow it, increasing the national debt. Not only will the government be paying $700 billion to bailout these reckless Wall Street companies, but also the billions of dollars in interest to pay off the debt. The bill requires the federal government to evaluate and purchase hundreds of billions of dollars of complex securities. Then the government will have to manage and ultimately sell these assets in an effort to recoup the taxpayers’ money. This is a responsibility for which it has no expertise and is a major intrusion in the financial markets with untold unintended consequences. This will directly affect every American by weakening the dollar and raising the cost of goods and services,” Goodlatte said in the statement.
Supporters of the measure didn’t come across as terribly enthusiastic on their side of the ledger, but the prevailing sentiment was that something had to be done to prevent the credit crunch on Wall Street from impacting negatively on Main Street.
“The plan wasn’t perfect. I would have loved to have been at the negotiating table to make sure that taxpayer interests were better protected. Particularly to ensure the taxpayer who participates has an upside opportunity to get their money back. But the choice was between acting or punting on the problem. And I believe that the failure to act will play havoc with our economy and people’s lives,” Democratic Senate candidate Mark Warner said yesterday during a meeting with reporters in Harrisonburg.
“This was a case again where the perfect could be the enemy of the good. This was a challenge about the credit markets, people’s ability to get a loan, companies’ ability to make payroll if they’ve got a line of credit. The downside risk of people losing jobs, people on retirement losing their savings, was just too great not to act,” Warner said of the vote in the Senate on Wednesday that passed the bailout rescue measure by a 74-25 margin.
President Bush wasted no time in signing the legislation today shortly after the House acted on the bill. “By coming together on this legislation, we have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country. We have shown the world that the United States of America will stabilize our financial markets and maintain a leading role in the global economy,” the president said in remarks after the passage of the bill.
“Our economy continues to face serious challenges. This morning, we learned that America lost jobs again in September – disappointing news that underscores the urgency of the bill that Congress passed today. It will take more time and determined effort to get through this difficult period. But with confidence and leadership and bipartisan cooperation, we’ll overcome the challenges we face, return our nation to a path of growth, and job creation, and long-term economic prosperity,” Bush said.
Democratic Party presidential candidate Barack Obama cautioned that the passage of the bailout rescue is “not a moment for celebration, but a sobering day when we found out that three-quarters of a million jobs were lost just this year. Passing this rescue plan cannot be the end of our work to strengthen our economy – it must be the beginning.”\
“I’m glad that Democrats and Republicans put aside their differences, came together, and took this step,” Obama said. “I am also grateful to the House Democrats I personally spoke with who supported this rescue plan. While the administration initially asked for a blank check to solve this problem, over the last few weeks we were able to include important taxpayer protections to prevent golden parachutes for CEOs, provide independent oversight, help struggling homeowners, and ensure that taxpayers get their money back when the economy recovers,” Obama said.
Sixth District Democratic Party congressional nominee Sam Rasoul raised issue with the addition of $150 billion in largely pork-barrel appropriations that were included in the bailout rescue to entice House Republicans to support the measure. “But we’re in a sensitive situation. As much as I hate to see our federal tax dollars going toward rescuing these firms, the reality is that our economy depends on credit. We needed this bill to make sure that we shore up our credit markets, which are already in disarray. It was something that needed to be done because we wanted to make sure that we didn’t have an economic collapse that would follow this financial collapse,” Rasoul said.
Fifth District Democratic candidate Tom Perriello criticized the no vote by GOP incumbent Goode as a double-edged letdown to Virginia taxpayers “first by helping to create the problem and second by failing to create a real solution,” Perriello said. “The fruits of the Bush-Goode economy are clear: exploding federal debt, the highest gas prices ever, stagnating wages, and 10,000 jobs lost in Southside. Rep. Goode hid behind a “no” vote today, instead of showing the independent leadership that could have prevented this crisis, or come up with a real solution. This is far too little, far too late,” Perriello said.
chrisgraham on Fri, 3rd Oct 2008 5:12 pm
U.S. Senator John McCain today delivered the following statement on the passage of the economic rescue package:
“I commend the House of Representatives for coming together to pass the economic rescue bill today. I’m glad I suspended my campaign to go back to Washington to help bring the House Republicans to the table. I believe that the taxpayer protections that have been added have improved the bill.
“This rescue bill is not perfect, and it is an outrage that it’s even necessary. But we must stop the damage to our economy done by corrupt and incompetent practices on Wall Street and in Washington.
“The action Congress took today is a tourniquet, not a permanent solution. Our economy is still hurting and further action is needed, and it should not take a crisis to get this Congress to act.
“Washington is still on the wrong track, and we face a stark choice in this election. We can go backwards with job-killing tax hikes, the same old broken partisanship, and out of control spending as Senator Obama would have us do or we can bring real reform to Washington.
“My focus is to reform Washington and put government back on the side of working families with tax relief, modern job training, energy independence, more affordable health care, and policies that get spending under control.
“That’s how we’re going to get America moving again, and that’s exactly what I’m going to do. Thank you and again, I commend the House Republicans for acting in the best interest of our nation.”
Tom Brown on Fri, 3rd Oct 2008 10:01 pm
Goodlatte voted “NO” twice in less than a week – not really representing his constituents, but political posturing. We need a representative who works at a higher level than his own re-election. Is the bailout perfect – Of course not. Did something need to be done immediately to prevent more Americans having to face financial disaster – especially job loses? YES. Did we have time to develop “perfect” legislation? NO. Has anyone ever seen any perfect legislation? They could have worked on that one until the cows came home. Goodlatte did not offer any full proposals of how to fix the problem – only criticize what was on the table (and good criticism at that). He had problems with part of the bill and so do I – especially the pork the Dems added to appease the Republicans. I appreciate Mr. Goodlatte paying close enough attention to recognize there were things about the bill that were not particularly attractive. I seriously doubt there is anyone in Congress who did not have some problem with part of the bill. He did NOT vote for your interest, but instead – his own. This is one Republican who will also vote “NO” on Nov 4th to the incumbent. It’s time!!
chrisgraham on Fri, 3rd Oct 2008 10:34 pm
I second everything Tom says here. The bailout wasn’t perfect, but it was what we could do. And the critics never came up with anything viable as an alternative. And they won’t have to now, of course, even as they attempt to politicize the issue to their gain.
Ivylane on Sat, 4th Oct 2008 2:25 pm
Cris was probably averted and despite the scary stats, I still see high paying jobs posted on employment sites -
http://www.linkedin.com (networking)
http://www.indeed.com (aggregated listings)
http://www.realmatch.com (matches you to jobs)
good luck to those searching jobs.
Bill Dolack on Sat, 4th Oct 2008 3:13 pm
There was a viable option — although I’m sure virtually no one in Congress considered it — offered up by finacial guru Dave Ramsey:
I. INSURANCE
a. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.
b. In order for a company to accept the government-backed insurance, they must do two things:
1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while working with the borrower—again limiting foreclosures and ruined lives.
2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming
executives from being paid when they don’t do their jobs.
c. This backstop will cost less than $50 billion—a small fraction of the current proposal.
II. MARK TO MARKET
a. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.
b. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.
III. CAPITAL GAINS TAX
a. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in
the markets. Again, this costs the taxpayer nothing.
b. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement
investments that go up instead of down.
This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to stand up, speak out, and fix this mess.
finnegan on Sat, 4th Oct 2008 3:29 pm
“Did we have time to develop “perfect” legislation? NO.”
False.
That’s like when meteorologists predict a hurricane, warn residents to prepare, and the residents do nothing until the hurricane is already upon them. Congress saw this coming for years, but did nothing to prevent it. Leading economists have been predicting this for years. Everyone in the U.S. has known for years that housing prices have become grossly overinflated. Even among non home-owners, the term “housing bubble” is not new to the American lexicon.
Bush did nothing for years, except encourage people to live outside their means and push for market deregulation. Congress did nothing for years but allow deregulation to take place.
The argument that there was “no other way” is absolute BS. Congress should have been drafting a solid bill years ago. Instead, they panicked when Bush and Paulson put a gun to their heads and said, “You have to vote for this shitty bill and give us hundreds of millions of dollars immediately OR ELSE!”
And they did.
I have never defended anything Goodlatte’s done before, but your claim that “He did NOT vote for your interest, but instead – his own,” is patently false. I’m one of countless constituents that called his office (Monday and again yesterday) and urged him to vote no. And I’m not alone.
chrisgraham on Sat, 4th Oct 2008 4:33 pm
Public-opinion polls, reflecting a wider cross-section of the population than phone calls to offices, show a 50-50 split on the bailout, and show that close to 90 percent of Americans felt that Congress needed to act in some way and soon.
I don’t disagree that the administration and Republicans and Democrats in Congress dropped the ball over a period of several years, and that’s what led to the crisis. My view is that when facing a crisis, it doesn’t do any good to talk about what you coulda, woulda, shoulda done. Give ‘em all hell for getting it wrong before, I’m there with you. But to respond to years of inaction leading to crisis with more inaction is irresponsible, in my view, and Goodlatte, with all due respect to him, given that this wasn’t an easy call either way, responded in this manner for reasons of political expediency.
Thanks, Bill, for sharing the suggestion from the financial guru that you quoted above. Part I looks good, but the politics to Part II make me a little suspicious of the gentleman’s motives. Which may be pure, since he ackowledges them in his presentation.
finnegan on Sat, 4th Oct 2008 6:16 pm
Not that I doubt you, but could you link to those polls? I’d be interested to see them.
I’m currently listening to the best episodes of This American Life I’ve ever heard. They’re about the credit crisis, what caused it, and what should have been done to stop it. Highly recommended listening:
http://www.thislife.org/Radio_Episode.aspx?episode=355
http://www.thisamericanlife.org/Radio_Episode.aspx?episode=365
For the record, I’ve never proposed inaction in the face of crisis. If you look at my comments here, I wrote, “Where were the expert testimonies? They should have had hundreds of leading economists testifying before Congress day and night for weeks while opponents drafted alternatives. Where were the alternative plans?”
chrisgraham on Sun, 5th Oct 2008 10:14 am
- http://www.washingtonpost.com/wp-dyn/content/article/2008/09/30/AR2008093000450.html
- http://people-press.org/report/452/public-favors-bailout
(The second one is two weeks old. I reference that one to show that there was support for the bailout even at the outset.)
To be clear, Brent, I didn’t accuse you of proposing inaction in the face of inaction. I do accuse Bob Goodlatte and Jim Gilmore of that. (You are in the crossfire as you defend Goodlatte. My apologies.) I like your idea of having opponents drafting alternatives and debating the issue for weeks, but the opponents weren’t interested in drafting alternatives, one, and two, in my mind, and the minds of many Americans, we didn’t have weeks to figure this one out.
We will never know now, of course. For me, that makes me happy. As an amateur economics historian, I didn’t want to have the opportunity to see the Great Depression of the 1930s that I’ve read a lot about play out in front of my eyes.
Bill Dolack on Mon, 6th Oct 2008 1:12 pm
Interesting quote from Bill Clinton: “I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was president, to put some standards and tighten up a little on Fannie Mae and Freddie Mac.”
chrisgraham on Mon, 6th Oct 2008 1:24 pm
From that same interview:
“I think the biggest mistake, by the way, that contributed to the current circumstance that almost nobody talks about, is the repeal after decades of something called the uptick rule, which allowed the hedge funds, heavily leveraged, and others to just drive down the market without any kind of automatic stoppers.”
The uptick rule was repealed by the SEC on July 3, 2007.
chrisgraham on Mon, 6th Oct 2008 1:28 pm
The above quote was the continuation of the answer that Clinton offered in the ABC interview.
From the transcript of the Sept. 25 broadcast of ABC’s “Good Morning America”:
(ABC NEWS’ CHRIS) CUOMO: A little surprising to you to hear the Democrats saying, “This came out of nowhere. This is all about the Republicans. We had nothing to do with this.” Nancy Pelosi saying it. She signed the ‘99 Gramm bill. She knew what was going on with the SEC. They’re all sophisticated people. Is that playing politics in this situation?
CLINTON: Well, maybe everybody does that a little bit. I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was president to put some standards and tighten up a little on Fannie Mae and Freddie Mac. [break] I think the biggest mistake, by the way, that contributed to the current circumstance that almost nobody talks about, is the repeal after decades of something called the uptick rule –
CUOMO: Mm-hmm.
CLINTON: — which allowed the hedge funds, heavily leveraged, and others to just drive down the market without any kind of automatic stoppers. But we are where we are. I think the most important thing is that you got two candidates for president saying, “Let’s try to minimize the partisan differences. We’ll have plenty of time later to look at who caused this and what mistakes were made. Let’s figure out what to do now and go forward.”
The part where Clinton continues his answer was left out of the right-wing blog posts about the interview. Conveniently. It never hurts to do a little digging …
Bill Dolack on Mon, 6th Oct 2008 2:04 pm
But it doesn’t change the fact that Dems are responsible as well.
chrisgraham on Mon, 6th Oct 2008 2:10 pm
I wouldn’t disagree. Nor would I disagree that it was Dems and Republicans who worked together to resolve the crisis. Just as it was Dems and Republicans who resisted the efforts undertaken to resolve the crisis. It happens that here in the Valley and in Virginia that we have Bob Goodlatte and Jim Gilmore leading the song and dance about the bailout being for Wall Street fatcats. We also have two presidential candidates representing the Ds and Rs who were among the leaders in the effort to get the problem fixed.
This one is an interesting one, because it’s not so much D and R as … I don’t know what and I don’t know what. I have good Dem friends (like Finnegan above) who agree with good Repub friends (like you, Bill) who think the whole thing was a boondoggle. And I have good friends on both sides who think those who think this was a boondoggle have heads full of lead.
And as is so often the case, I end up in the middle hearing it from both sides, which is what good journalist types do most of the time. I definitely see both sides to the argument, and while I come down firmly on the pro-rescue bailout side, it’s not for political reasons, because if it was, what would those political reasons be? Because I support Obama when McCain backed the bill as well? Nah. This one is a lot more complicated than that.